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September 9, 2013

ETF Investors Take Fresh Look at European Blue Chips

Companies in France, Germany continue to gain traction

Here’s a hot corner of the global market you might want to look into — Europe (that’s right, Europe).

With inflows into the SPDR EURO STOXX 50 ETF (FEZ) topping $1.4 billion during the first eight months of 2013, it appears investors are reassessing the role of European blue chips amid signs of an economic recovery in the region. In fact, the Eurozone purchasing managers' index hit a 26-month high in August.

So what’s driving the trend? In large part, relief.

“There is something to be said for that,” says David Mazza (left), head of ETF investment strategy at State Street Global Advisors.

Of course, the fundamentals of European blue chips help, as those mainly in France and Germany that sell into other markets around the globe continue to gain traction. Mazza notes that many companies are not only undervalued when compared with where they’ve historically been, but also undervalued when compared with their counterparts in the United States.

“The sense that we’re headed in the right direction, combined with strengthening of many multinational corporations that might in part be domiciled in Europe is pushing the trend,” Mazza adds. “Yes, it’s mainly in the core of the Eurozone, but we see a few in countries like Italy, Belgium and the Netherlands.”

One pushback that he’s receiving for the euro blue-chip argument is the fact that if you’re looking for a solid value play, countries like Spain and Italy are the places to be.

“The issue with that is bear in mind that the news for the past few months has been that investors are looking for signs of solid, longer-term progress,” Mazza says. “Those companies that are the most leveraged to European upside are those in countries like France and Germany; companies that are diversified globally and selling into other markets.”

And it’s not just in the United States that investors are more excited about Europe. Mazza concludes that similar questions are being asked about Europe in Asia and many other parts of the globe, so it’s a “broadly established trend.”